White Paper on Universal Credit

Written Evidence Submitted by The Scottish Federation of Housing Associations

1 Executive Summary

1.1 The SFHA agrees with the UK Government that the existing welfare system is too complex and in need of radical reform. The SFHA feels that the concept of a unified benefit is worthy of exploration. But we have grave concerns about the pace of the welfare reform agenda and its linkage with public expenditure cuts.

1.2 We are concerned that the combined impact of all of the current welfare reform plans, including the changes proposed in the Emergency Budget and the Comprehensive Spending Review, will have a detrimental impact on

- the lives of low income households;

- the operational costs and revenue streams of social landlords.

1.3 The SFHA’s principal concern is to support our members in seeking to prevent and alleviate homelessness. We consider it a priority to examine any proposed changes to the welfare system that could undermine our members’ work to ensure that even the most vulnerable tenants can sustain their tenancies.

1.4 The SFHA considers it vital that any reforms must take account of the interaction between devolved and reserved powers. Changes and restrictions to Housing Benefit could potentially impact on demand for housing, levels of indebtedness, and potentially increase homelessness. A number of the changes proposed to welfare benefits, including the Universal Credit proposal, have the potential to exacerbate this potential impact. All of this has implications for matters of housing policy devolved to the Scottish Parliament.

1.5 The UK Government’s White Paper, Universal Credit: welfare that works, appears to imply that the root cause of poverty is benefit dependency. It does not take sufficient account of prevailing economic conditions and other factors that affect ability to work.

1.6 The SFHA has outlined in this submission a number of detailed concerns about the Universal Credit proposal. The most significant of these concerns for our members is that a mechanism for direct payment of housing costs to social landlords must continue.

2 Who We Are

2.1 The SFHA is the national representative body for housing associations and co-operatives in Scotland.

2.2 Housing associations and housing co-operatives in Scotland own and manage 47% of the country’s affordable rented housing stock. This represents 279,144 homes across Scotland, concentrated in some of the poorest communities in our country.

Approximately 60% of social housing tenants in Scotland rely on full or partial Housing Benefit in order to pay their rent. [1]

2.3 This submission focuses upon those aspects of the proposal that will have the most significant impact upon the work of our members and upon the communities within which they operate.

3 Need For Reform

3.1 The SFHA responded to the consultation paper which preceded the White Paper, 21st Century Welfare. In that response [2] , we posed the question, why do we need a welfare system in the UK? We feel that the answer to this question is straightforward: in an economy which expects the majority to support themselves through earnings, state intervention is required to provide a safety net to those whose income is threatened.

The primary threats to income are: unemployment; relationship breakdown; illness; ageing; pregnancy/childcare responsibilities. Threats to income impact upon the quality of people’s day to day lives but the first and foremost danger is to the roof over their heads. Every citizen has a basic human right to shelter.

3.2 The SFHA’s principal concern is to support our members in seeking to prevent and alleviate homelessness. This includes ensuring that even the most vulnerable living in the communities in which our members operate can sustain their tenancies. Consequently, the SFHA considers it a priority to examine any proposed changes to the welfare system that could have a detrimental impact upon tenants and thus undermine our members’ work.

3.3 The SFHA agrees that the welfare system is too complex and in need of radical reform. In our view, successful reform requires extensive debate with all of the key players, careful consideration of the detail and sufficient investment to ensure fairness. Given the prevailing economic climate and the earlier proposals to change Housing Benefit [3] and other welfare benefits [4] , the SFHA is not convinced that sufficient funding will be made available for the proper implementation of the proposed unified benefit. We also have grave concerns about the pace of developments since May this year and specifically, about the speed with which the decision about Universal Credit was announced following the close of the 21st Century Welfare consultation.

3.4 The SFHA agrees with the Social Security Advisory Committee (SSAC) that:

"Rapid cuts made in order to reduce expenditure could further distort the system and make wholesale rational reform of the welfare system even harder in the longer term. The speed with which some of the changes are being designed and implemented also leaves very little time for the consideration of a holistic view of the social welfare agenda, which for example needs to take account of the impact on housing policy, child outcomes and poverty levels." [5]

3.5 We also agree that, in many cases, the current system of benefits and taxation discourages those who can work from doing so because they would be financially worse off. The current system has become ever more complex due to the increasing amount of sanctions and conditionality that has been introduced into it over the years by successive governments.

3.6 We estimate that there is an amount of benefits unclaimed in Scotland each year, often by housing association and co-operative tenants. There are many reasons for this, ranging from the complexities of the system, not understanding the impact of life changes on their entitlement, negative experiences of the system, stigma of claiming, to a sense that they are "already getting by". Other reasons for underclaiming include the incidence of casual and seasonal work, particularly in rural areas. The consequences of this are significant and serious [6] :

- Between 166,000 and 235,000 older people underclaim between £280m and £399m of Pension Credit each year;

- Between 64,000 and 100,000 people underclaim between £108m and £203m of Housing Benefit each year;

- Older social rented tenants may underclaim around £150m per year

3.7 The SFHA has given its support to the Scottish Campaign on Welfare Reform’s Manifesto for Change [7] . The SFHA agrees that: "the successive introduction of new benefits with even more conditions attached has resulted in a system so complex people often don’t know what they are entitled to and are frequently plunged into financial crisis every time their circumstances change. The system is expensive to administer and badly underfunded leaving staff facing impossible demands. It is time to stop tinkering with the system and make some fundamental changes." [8]

3.8 We have examined the Universal Credit proposal and we believe that the combined impact of all of the current welfare reform plans, including the changes proposed in the Emergency Budget and the Comprehensive Spending Review will have a detrimental impact on the lives of low income households, particularly if unemployment remains high. In Scotland, the unemployment rate is not falling at the same rate as in the UK as a whole, and remained at 4.9% at the end of August 2010 [9] .

3.9 A recent report on poverty and social exclusion in Scotland states that, although Scotland entered the recession with lower unemployment and child poverty than in England, it has fared worse since. [10] We are also concerned that the proposals may impact upon the operational costs and revenue streams of social landlords, at a time when they are focused upon keeping costs down in order to maintain affordable rents. Increases in costs must be met by increases in rents, which in turn pushes up the Housing Benefit bill. The SFHA is currently campaigning against the planned cuts to Housing Benefit, with support from the other three UK-based Federations. [11]

3.10 We have not seen any evidence that the UK Government is willing to prioritise the public investment that would be required to rebuild the economy and support people during the recovery. Instead, all of the signs are that the welfare benefits system is being targeted as a route to make significant savings. [12]

4 Benefit Dependency

4.1 At the risk of over-simplification, it appears to us that there is an implication in the White Paper and in 21st Century Welfare that the root cause of poverty is benefit dependency and that, if benefit dependency is addressed, poverty is therefore alleviated. This fails to recognise the significant impact of prevailing economic factors such as: job availability; availability of affordable childcare; low-pay; suitability of the currently unemployed for the available vacancies; employers’ attitudes to long term unemployed/sick/disabled; high costs of rents, energy and travel.

4.2 There will always be people who cannot work for reasons outwith their control or who cannot find employment that they are qualified to do. The SFHA is perturbed that there is insufficient recognition in the White Paper that rates of benefit must be sufficient to lift claimants out of poverty.

4.3 This leads us to question whether the key driver for simplification is, quite simply, to save public expenditure, rather than it being creating a system that is fit for purpose and fit for the 21st Century.

4.4 The Social Security Advisory Committee’s response to 21st Century Welfare expressed concern about the language used by the UK Government in referring to "welfare dependency", implying that it is a "lifestyle choice". The SSAC has emphasised that "dependency" implies the unnecessary or inappropriate receipt of benefit. "We know of no reliable evidence to suggest that benefit receipt is a matter of "choice" for the overwhelming majority of benefit recipients." [13]

4.5 As indicated above, the SFHA is a co-signatory to the Scottish Campaign on Welfare Reform’s (SCoWR) Manifesto for Change. The key demands of the Manifesto are:

- Increase benefit rates to a level where no one is left in poverty and all have sufficient income to lead a dignified life;

- Make respect for human rights and dignity the cornerstone of a new approach to welfare;

- Radically simplify the welfare system;

- Invest in the support needed to enable everyone to participate fully in society;

- Make welfare benefits in Scotland, suitable for Scotland.

The detail within the Manifesto outlines what these demands would mean in practice for the delivery of a radically improved welfare system. [14]

4.6 It is the SFHA’s view that the key demands outlined in the SCoWR Manifesto form a robust set of principles for a welfare system that is fit for the 21st Century. It is also our view that this must be accompanied by a significant public investment programme, including investment in housing. We consider that now is not the time to cut spending on welfare, but rather to invest our way into economic recovery.

5 The Universal Credit Proposal: SFHA’s Concerns

5.1 The SFHA is in favour of addressing the complexities in the Housing Benefit and welfare benefits system and a unified working age benefit could be one solution. However, there has been insufficient discussion with the key parties, including social landlords. The 21st Century Welfare consultation paper lacked any of the detail that would have been required to assess impact.

5.2 The SFHA agrees with Professor Kenneth Gibb, that "if the long term goal is to move to a much simpler universal type allowance with an embedded housing allowance within it…..then the shift from one system to the new one has to be managed and the transition made acceptable to all parties………Housing Benefit on this scale directly affects the poorest in society but also the very bodies whose purpose is to provide aid and support to those people. It the outcome of reform is to make private finance even less accessible [for housing investment] it will be self defeating." [15]

Direct Payment of Benefit including Housing Costs

5.3 It is proposed that the Universal Credit will be paid directly to the claimant, although the White Paper refers to the Government recognising the importance of stable rental income for social landlords and states that Universal Credit will be developed in a way that protect their financial position. The Paper goes on to state that "options for achieving this could include some ongoing use of direct payments to landlords, use of direct debits and a protection mechanism which safeguards landlords’ income. We will work closely with the devolved administrations, providers and lenders in developing the new system." [16] Whilst we appreciate this acknowledgement of the issue, we have grave concerns about the potential impact of the new system on rent collection, rent arrears and lenders’ confidence in the sector’s rental streams. The facility for direct payment to landlords, which exists currently in the Housing Benefit regime, must remain within the Universal Credit regime. The SFHA has campaigned consistently against the many previous proposals to end the facility for direct payment of housing costs to social landlords. If our concerns are ignored, rent arrears will spiral in our sector, with a consequential impact on operating costs, revenue income and tenant indebtedness. There must also be a mechanism for rent arrears repayment from Universal Credit, as exists in the current system.

Tapers and Disregards

5.4 We welcome the proposed reduction in the withdrawal taper and the proposed increase in income disregards, as this will make the transition from benefits into work less of a financial struggle. However, we note that it is proposed that there will be no earnings disregard for single people without children. This is a move away from existing policy where the earnings disregard for single people is £5. The SFHA would wish to see an increased disregard applied to single people.

5.5 We note also the White Paper states that disregards will be reduced to take account of the amount of support being provided for housing costs. [17] This statement concerns us as it does not explain what the precise impact would be and may actually outweigh any benefit accrued from the increased disregards.

Automatic Adjustment

5.6 We also welcome the proposal to automatically adjust Universal Credit payments for those in work, according to monthly income reported through an upgraded PAYE system. If this works smoothly in practice, then we believe that this will prevent over and under payments and reduce the burden on people in work to report fluctuating earnings. However, it also has the potential to increase financial hardship if there are significant teething problems in the integration of the computer systems. It is vital that there is sufficient investment in the computer systems if administrative errors and payment delays are to be avoided.

Claiming and Reporting Changes in Circumstances

5.7 The White Paper states that the normal method of claiming the new Credit will be via an online application and that changes in circumstances will also have to be reported online. Whilst we welcome any improvements in the system that assist a claimant to make a claim and enable a quicker re-assessment of any changes, we have concerns that offering a predominantly on-line process will be: problematic for those who do not have easy access to the internet or who are not regular users; difficult for those who have either physical or mental health difficulties that may limit their ability to complete applications in this way.

Monthly Payments

5.8 We have the following concerns about the proposal to pay the new Credit monthly:

- Most benefit claimants are accustomed to managing their money on a weekly or fortnightly basis;

- Many will have regular bills, including utilities, set up on a weekly payment plan;

- Those who are vulnerable and those with support needs, including literacy and numeracy challenges, will find it particularly difficult and may be left with no income for the majority of the month;

- As benefit is usually paid in arrears then, potentially, claimants will have to wait a month before their first payment.

Conditionality and Sanctions

5.9 We note that the White Paper proposes a significant increase in the conditionality and sanction regime for claimants. Whilst we accept that benefit claimants should fulfil certain conditions, we are concerned that the punitive sanctions outlined may lead to significant increases in hardship, poverty and indebtedness. We welcome the reference to a continued facility for hardship payments for those who have a sanct ion imposed upon them. But we would have concerns if this is turned into a loan facility, placing an additional financial burden upon people who already have a limited income.

5.10 We have a specific concern about the sanctions for what are deemed to be the most serious failures, including payment ceasing for three months or longer. We note that serious failure may include failure to accept a reasonable job offer. [18] There is no clarification or definition of "reasonable" and we contend that this leaves the way open for considerably subjective judgements to be made.

5.11 The White Paper states that there are no plans currently to extend the sanction regime to Housing Benefit. [19] However, one of the changes proposed in the Emergency Budget in June 2010 was to reduce Housing Benefit by 10% for tenants in receipt of Job Seekers’ Allowance for more than a year. [20] The SFHA is highlighting this apparent contradiction. The SFHA’s view is that any withdrawal of benefit should be related to the reason for paying the benefit, i.e. do not withdraw benefit related to housing costs because of unemployment.

5.12 The SFHA is disappointed that the Universal Credit proposal does not address :

- the actual costs of returning to work, including travel costs, tools for the job, clothing etc;

- child care costs;

- continuation of the Discretionary Housing Payment scheme, which has been an invaluable tool to help alleviate people in financial difficulty;

- whether it is desirable to compel claimants to take any job, even if it is not appropriate to an individual’s qualifications or experience;

- that taking part in a Workfare programme may limit time available to look for work and offer little practical training;

- the implications of increased levels of discretion on DWP staff to impose sanctions;

- the implications of a double migration of claimants, firstly from Income Support and Incapacity Benefit to Employment and Support Allowance in 2013 and then migration onto Universal Credit by 2017;

- the impact of the possible removal of In-Work Credit for lone parents and Job Grant; [21]

- The challenges local authorities will have in administering a revised system of Council Tax Benefit within a reduced budget; [22]

- The difficulties placed on local authorities to administer parts of the Social Fund. [23]

6 Delivery of a Reformed System

6.1 The SFHA considers it vital that any reforms must take account of the interaction between devolved and reserved powers. Social Security legislation is reserved to Westminster but any changes will affect the residents of GB, including Scotland. Changes and restrictions to Housing Benefit could potentially impact on demand for housing and levels of indebtedness, and potentially increase homelessness. A number of the changes proposed to welfare benefits, including the Universal Credit proposal, have the potential to exacerbate this. All of this has implications for matters devolved to the Scottish Parliament.

6.2 For example, the Scottish Government has been committed to dealing with homelessness since 2005, when a ministerial statement was issued stating the aim of "abolishing priority need by 2012".2 The changes being proposed to the welfare system have the potential to cut across this policy aspiration by making it difficult for low income households to sustain their tenancies. The Scottish Government may also have to factor in an increase in spending on services such as Housing, Social Work and Advice Services as a consequence of these changes; all at a time when the income they receive from Central Government is being reduced.

6.3 The Scottish Government has established a Housing Benefit Stakeholder Group to examine the Scottish impact of the proposed changes to Housing Benefit and the Local Housing Allowance, with a view to submitting a report to the Department of Work and Pensions shortly. SFHA is a member of the Stakeholder Group.

7 Concluding Comments

7.1 It is the SFHA’s view that there is an opportunity now for the UK Government to invest in the economic recovery of the UK and to frame a welfare system that supports with dignity and respect those who cannot be economically active or who are unable to earn a living wage. 2010 is the European Year for Combating Poverty and Social Exclusion. The SFHA gave its support to the European Anti-Poverty Network’s call for a specific poverty reduction target to be included in the new Europe 2020 Strategy for Jobs and Growth.

7.2 While we welcome the UK Government’s statements that it wishes to tackle the root causes of poverty, we remain to be convinced that the White Paper on Universal Credit will assist in achieving this. It may deliver a less complex and bureaucratic system, but we are as yet unclear as to whether sufficient investment will be allocated to ensure that it helps to lift people out of poverty.

7.3 No welfare system in isolation, no matter how well designed, can create the sustainable economic environment that this country needs in order to ensure that no one need be caught in a cycle of poverty and deprivation.

December 2010